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Interest in Tax Proceedings from Two Perspectives

11.05.2017Company: Deloitte

The storm caused by the relatively ground-breaking decision of the Supreme Administrative Court in the ‘Kordárna’ case has hardly calmed down, and another controversial issue related to interest on tax deduction is showing up.

This time, the subject of the discussions between the experts and the Financial Administration is the taxation of interest on income tax deductions. At the meeting of the Coordination Committee of the General Financial Directorate (GFD) and the Chamber of Tax Advisors of the Czech Republic held in March, the GFD expressed an opinion that interest on tax deduction/interest accrued as a result of an excessive VAT deduction being retained is subject to personal or corporate income tax at the recipient based on the decision in the Kordárna case. In the GFD’s opinion, solely interest accrued as a result of unjustified acts of the Tax Administrator and interest on a delayed return of a refundable overpayment are exempt from tax as their occurrence is determined by specific incorrect or unlawful proceedings of the Tax Administrator.

On the other hand, the comforting news is that well-founded opinions have been appearing in specialised press stating that in case interest is being accrued (and, at the same time, a refundable overpayment on a personal tax account arises) as a result of an unlawful action of the Tax Administrator later than stipulated by the law, the affected taxable entity is moreover entitled to seek interest on the delayed return of such refundable overpayment. Pursuant to the aforementioned statement of the GFD, both types of interest would be exempt from income tax. Alena Dugová adugova@deloittece.com Hana Erbsová herbsova@deloittece.com

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